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Does it seem like more and more ponzi schemes are coming to light these days? Perhaps in part this is because people are scrutinizing their investments, and are realizing that what they thought was a wonderful return for their investment, but not in fact be the case. One thing is for certain, Bernie Madoff is not the only person having ponzi scheme issues as a result of recent events. The latest casualty appears to be in the Central District of California, where an individual is pleading guilty to being involved in a 15 million dollar ponzi scheme. The DOJ Press Release states that this individual "operated a Ponzi scheme through his Newport Beach-based investment companies" and "promised investors 'guaranteed' annual returns of between 10 percent and 18 percent per year, telling investors that their money would be invested in foreign currency trading, oil wells, real estate and other vehicles." The press release states that "[o]ver the course of his scheme, [he] defrauded more than 200 people out of more than $15 million, taking millions of dollars that his victims [ ] initially invested in IRA retirement savings accounts." In addition to pleading guilty to mail fraud for the ponzi scheme, the press release notes that there were "bribery, passport fraud and identity fraud charges resulting from his attempt to procure a fraudulent passport and flee the country after his scheme collapsed."

The Federal Bar Association and the National Association of Criminal Defense Lawyers, along with the ABA Criminnal Justice Section, have issued the program for the 18th Annual National Seminar on the Federal Sentencing Guidelines. The event is scheduled for May 21-22 in Clearwater Beach, Florida. See here for details - Download 290200_09_guidelines_book

For those who might be thinking that white collar offenders will not face heavy sentences in a post Gall and Rita world - today's sentences prove otherwise. A DOJ Press Release tells that "[t]wo former National Century Financial Enterprises (NCFE) executives were sentenced today for their roles in a scheme to deceive investors about the financial health of NCFE," with one receiving a sentence of 30 years and 3 years of supervised release following the prison term, and the other being sentenced to 25 years in prison and 3 years of supervised release following the prison term. The first individual, age 65, who served as the "president, owner and chief executive officer of NCFE," also was sentenced to a concurrent sentence of 10 years in prison. The former "chair[ ], secretary, treasurer, director and owner of NCFE, age 60, who received the 25 year sentence was convicted of conspiracy, securities fraud, wire fraud and money laundering. The press release states that she "fled after the conviction and remains at large." In addition to the prison sentences, the court also ordered the two "to forfeit $1.7 billion of property representing the proceeds of the conspiracy and to pay restitution of $2.3 billion, jointly and severally with other defendants." The joint and several part may be an issue with one party still at large. The press release notes that "NCFE, formerly based in Dublin, Ohio, was one of the largest healthcare finance companies in the United States until it filed for bankruptcy in November 2002."

In the Nacchio case (see here), the defense was precluded from having an expert witness testify. In the Goyal case (see here), the issue is that the prosecution failed to provide an expert witness to show that there was a GAAP violation. It is interesting to see the importance of expert testimony in white collar cases -- cases that tend to be more complicated and require educating the jury on the technicalities of transactions.

The National Association of Criminal Defense Lawyers (NACDL) has filed an amicus brief in the Goyal case arguing that the government was required to "offer expert testimony that a GAAP violation in fact occurred." As stated in the brief, "a jury should not be treated as a team of accountants and asked to interpret and apply GAAP without expert guidance." (note- a similar issue, although not the same circumstances, was discussed in the Rigases and Ebber's case - see here). This is a particularly interesting issue as the need for an expert has been noted in civil accounting cases. The amicus brief notes that "the need is even more pressing in criminal cases, where the burden of proof of each element is higher- beyond a reasonable doubt, rather than merely by a preponderance of the evidence." The brief also examines the mens rea requirement for corporate officers.

The U.S. Supreme Court is set to hear oral argument tomorrow on the case of Yeager v. United States, (see here) a case that reexamines the collateral estoppel rule in a white collar context. The question before the Court is:

"Whether, when a jury acquits a defendant on multiple counts but fails to reach a verdict on other counts that share a common element, and, after a complete review of the record, the court of appeals determines that the only rational basis for the acquittals is that an essential element of the hung counts was determined in the defendant's favor, collateral estoppel bars a retrial on the hung counts."

The defendants in the case "were tried on various counts for their actions while employed at Enron Broadband Services ("EBS"). The jury acquitted Defendants on some of these counts but hung on others, after which the United States ("Government") again indicted Defendants on some of the mistried counts." The issue is now whether collateral estoppel can apply to hung counts.

There is no question that the circuits are split on this issue and that Supreme Court guidance is needed. But a lot is at stake here in that the collateral estoppel rule, an important component of the constitutional protection against double-jeopardy, is being tested. Some of the questions here are: Should prosecutors be rewarded for "overcharging their cases and then failing to prove the superfluous charges?" Should courts provide legal oversight when it is clear that the law can only be interpreted one way? If the acquitted counts estop the hung counts, can a court chalk this up to jury irrationality and just permit the jury a second bite at the apple?

(esp)

Addendum - Briefs can be found on this ABA site here. (w/ a hat tip to Jack Townsend)

The Second Circuit Court of Appeals issued a Summary Order finding that Bernie Madoff should remain in jail during the pending of his case before the court. The court notes that the "burden is on a defendant to demonstrate by clear and convincing evidence that he is not likely to flee or pose a danger to the safety of others or the community." The district court had found "that in light of the defendant's age (70) and the length of a potential sentence (150) years, he has an incentive to flee, and that because he has the means to do so, he presents a risk of flight, and therefore should not be released." (emphasis added) The appellate court found that "[t]he defendant's age and his exposure to imprisonment are undisputed, and the court did not err in inferring an incentive to flee from these facts." (emphasis added) The Second Circuit upheld the district court's decision finding that the court did not err in "its assessment that the defendant has failed to show by clear and convincing evidence that he is not likely to flee."

Madoff is not a sympathetic character right now, and the applause he received from the courtroom audience, when ordered to jail, sent that message clearly (see here). But all that said, it is interesting to see a court consider the age of the accused in a bail decision? If we said it was based on race or gender it would be subject to scrutiny. And age, according to the Sentencing Guidelines "is not ordinarily relevant in determining whether a departure is warranted." It can be used if the accused "is elderly and infirm and where a form of punishment such as home confinement might be equally efficient as and less costly than incarceration." (5H1.1). Is using age as a factor in a bail decision different?

Joseph P. Nacchio, former CEO of Qwest Communications filed a Petition for Certiorari in the U.S. Supreme Court. He argues that the Tenth Circuit decision (en banc) conflicts with other circuits. The decision in the 10th Circuit was split 5-4 (see here and here). The issues presented in this Cert Petition are:

"1. Whether the defendant is entitled to acquittal or a new trial because the Tenth Circuit, in conflict with the standards applied in other circuits, erred by upholding the jury instructions bearing on the materiality of the type of information at issue, and by holding that there was sufficient evidence that the defendant failed to disclose material information and knew it.

2. Whether the judgment must be reversed and remanded for a new trial because the Tenth Circuit approved the use of impermissible procedures for the exclusion of expert testimony under Rule 702 that conflict with decisions of other circuits.

3. Whether the Tenth Circuit’s decision should be summarily reversed because it misapplied decisions of this Court, mischaracterized the district court’s reasoning, failed to resolve all the issues presented, and held that Nacchio failed to address an issue that was a principal focus of his brief."

There are several important issues in this case, such as whether a charge of insider trading is proper when "the allegedly material 'inside' information consisted of internal corporate risk assessments about financial results for future quarters." Another key issue in this case is the failure to admit the testimony of a defense witness. With Daubert and rules related issues to consider, the importance of a defendant to present his or her defense is considered here.

Curt Anderson, Florida AP, US prosecutors accused of misconduct in case - Did prosecutors authorize two witnesses to record their conversations with defense counsel? And did the prosecutor fail to reveal evidence to the defense? The more important question is - what would defense counsel have faced if the tables were turned.

The numbers for December 2008 have been released by TRAC (see here) and white collar prosecutions were down 17.3 % from five years previous. The jurisdictions with the largest number of prosecutions per capita were the Southern District of Mississippi, the Middle District of Louisiana, and the District of Montana. But again, these statistics need to be examined carefully. (see here and here), especially with regard to how the term "white collar crime" is defined.

The question now will be whether the new administration brings in higher numbers when it comes to white collar prosecutions and convictions.

(esp) (w/ disclosure that she is a B.S. graduate of Syracuse U.- home of the Trac Reports).

The DOJ and SEC are both widening the net of individuals being accused of conduct related to the Madoff matter. The latest complaints (SEC and DOJ) are against his accountant. What is particularly interesting here is the question of what are the responsibilities of an individual who may have access to financial matters of another. Is there an obligation to audit the information provided by a client? And will attorneys be required as "gatekeepers" to question information provided to them by their clients? This issue was one discussed at the recent ABA White Collar Crime Conference here.